IGNOU MBA MS-09 Solved Assignments July 2010

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  • 7/27/2019 IGNOU MBA MS-09 Solved Assignments July 2010



    IGNOU MBA MS-09 Solved Assignments July 2010

    Course Code : MS- 09Course Title : Managerial EconomicsAssignment Code : 9/TMA/SEM-II/2010Coverage : All Blocs

    Attempt All the uestions!

    1! "A #lose $el%tionship &et'een m%n%gement %nd e#onomi#s h%sled to the development o( m%n%ge$i%l e#onomi#s!) *+pl%in this


    Solution, Managerial economics is the use of economic moes of

    thought to anal!"e #usiness situations.$%ouglas& 'Managerial economics(

    is concerne )ith the a**lication of economic *rinci*les an

    methoologies to the ecision ma+ing *rocess )ithin the firm or

    organi"ation uner the conitions of uncertaint!$. S*encer an Siegelman

    efine it as The integration of economic theor! )ith #usiness *ractices

    for the *ur*ose of facilitating ecision ma+ing an for)ar *lanning #!

    management.$ Managerial economics is the a**lication of economic

    theor! an anal!sis to *ractice of #usiness firms an other institutions.$ ,

    common threa runs through all these escri*tions of managerial

    economics )hich is using a frame)or+ of anal!sis to arri-e at informe

    ecisions to maimi"e the firm(s o#/ecti-es& often in an en-ironment of

    uncertaint!. It is im*ortant to recogni"e that ecisions ta+en )hile

    em*lo!ing a frame)or+ of anal!sis are li+el! to #e more successful than

    ecisions that are +nee /er+ or gut feel ecisions.

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    0conomic acti-it! is the constant effort to match ens to means #ecause

    of scarcit! of resources. The o*timal economic acti-it! is to maimise the

    attainment of ens& the means an their scarcities or to minimise the use

    of resources& gi-en the ens an their *riorities.

    %ecision ma+ing #! management is trul! economic in nature #ecause it

    in-ol-es choices among a set of alternati-es 1 alternati-e courses of

    action. The o*timal ecision ma+ing is an act of o*timal economic

    choice& consiering o#/ecti-es an constraints. This /ustifies an

    e-aluation of managerial ecisions through conce*ts& *rece*ts& tools an

    techni2ues of economic anal!sis of the follo)ing t!*es.

    0conomics has e-elo*e se-eral conce*ts an anal!tical tools to eal

    )ith the 2uestion of allocation of scarce resources among com*eting

    ens. The non1tri-ial *ro#lem that nees to #e aresse is ho) an

    econom! through its -arious institutions sol-es or ans)ers the three

    crucial 2uestions *ose a#o-e. There are three )a!s #! )hich this can #eachie-e. One& entirel! #! the mar+et mechanism& t)o& entirel! #! the

    go-ernment or finall!& an more reasona#l!& #! a com#ination of the first

    t)o a**roaches. 3ealisticall! all economies em*lo! the last o*tion& #ut

    the relati-e roles of the mar+et an go-ernment -ar! across countries. or

    eam*le& in Inia the mar+et has starte *la!ing a more im*ortant role in

    the econom! )hile the go-ernment has #egun to )ithra) form certainacti-ities. Thus& the mar+et mechanism is gaining im*ortance. , similar

    change is ha**ening all o-er the )orl& incluing in China. But there are

    economies such as M!anmar an Cu#a )here the go-ernment still *la!s

    an o-er)helming *art in sol-ing the resource allocation *ro#lem.

    0ssentiall!& the mar+et is su**ose to guie resources to their most

    efficient use. or eam*le if the salaries earne #! MB, egree holers

    continue to rise& there )ill #e more an more stuents )anting to

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  • 7/27/2019 IGNOU MBA MS-09 Solved Assignments July 2010



    earn the egree an more an more institutes )anting to *ro-ie such

    egrees to ta+e a-antage of this o**ortunit!. The go-ernment ma! not

    force this to ha**en& it )ill ha**en on its o)n through the mar+et

    mechanism. The go-ernment& if an!thing& coul *ro-ie a regulator!

    function to ensure 2ualit! an consumer *rotection.


    2! Given % (i$ms dem%nd (un#tion. / 2 - 0! %nd the %ve$%ge

    #ost (un#tion. A3 24 5 6 78 6 7. #%l#ul%te the level o(

    output 'hi#h %: m%+imi;es tot%l $evenue

    &: m%+imi;es p$o(its

    Solution, 'ill uplo%d soon

  • 7/27/2019 IGNOU MBA MS-09 Solved Assignments July 2010



    =;?4>> 5 ::;:A 5 :A;=4>

    @>>;?>> 5 @; 5 :44;=4>

    But =;@ D ::;:A D @; & or9

    :A>;=4> D :A;=4> D :44;=4>

    ,8 irm is not using o*timal com#ination of in*uts.

    B8 To mo-e com#ination to)ar e2uili#rium an assuming )hat )ages

    are fie #! mar+et )e nee to #alance marginal *roucts of )or+ers.

    MP of manual )or+ers might sta! the same 7no changes in )or+ers


    MP of technicians shoul #e ecrease 7more )or+ers re2uire8

    MP of su*er-isors shoul #e increase 7less )or+ers re2uire8

    Though changes actuall! e*ens on a-aila#le #uget& mar+et eman&

    *lanne;e*ecte out*ut re-enues& etc. 7man! ifferent assum*tions8.


    ! =oes /$i#e =is#$imin%tion e+ist in the $e%l 'o$ld> =is#uss 'ith

    $e(e$en#e to %ny p%$ti#ul%$ p$odu#t o$ se$vi#e!

    Solution ,Price iscrimination or !iel management occurs )hen a firm

    charges a ifferent *rice to ifferent grou*s of consumers for an ientical

    goo or ser-ice& for reasons not associate )ith costs.

    It is im*ortant to stress that charging ifferent *rices for similar goos is

    not *ure *rice iscrimination.

  • 7/27/2019 IGNOU MBA MS-09 Solved Assignments July 2010



    *remium *rice #ecause of actual or *ercei-e ifferences in the 2ualit! ;

    *erformance of a goo or ser-ice.

    Conitions necessar! for *rice iscrimination to )or+. 0ssentiall! there

    are t)o main conitions re2uire for iscriminator! *ricing

    : %ifferences in *rice elasticit! of eman #et)een mar+ets9 There must

    #e a ifferent *rice elasticit! of eman from each grou* of consumers.

    The firm is then a#le to charge a higher *rice to the grou* )ith a more

    *rice inelastic eman an a relati-el! lo)er *rice to the grou* )ith a

    more elastic eman. B! ao*ting such a strateg!& the firm can increase

    its total re-enue an *rofits 7i.e. achie-e a higher le-el of *roucer

    sur*lus8. To *rofit maimise& the firm )ill see+ to set marginal re-enue 5

    to marginal cost in each se*arate 7segmente8 mar+et.

    = Barriers to *re-ent consumers s)itching from one su**lier to another9

    The firm must #e a#le to *re-ent mar+et see*age$ or consumer

    s)itching$ E efine as a *rocess )here#! consumers )ho ha-e

    *urchase a goo or ser-ice at a lo)er *rice are a#le to re1sell it to thoseconsumers )ho )oul ha-e normall! *ai the e*ensi-e *rice. This can

    #e one in a num#er of )a!s& E an is *ro#a#l! easier to achie-e )ith the

    *ro-ision of a uni2ue ser-ice such as a haircut rather than )ith the

    echange of tangi#le goos. See*age might #e *re-ente #! selling a

    *rouct to consumers at uni2ue an ifferent *oints in time E for eam*le

    )ith the use of time s*ecific airline tic+ets that cannot #e resol uneran! circumstances.

    *+%mples o( p$i#e dis#$imin%tion

    Price iscrimination is an etremel! common t!*e of *ricing strateg!

    o*erate #! -irtuall! e-er! #usiness )ith some iscretionar! *ricing

    *o)er. It is a classic *art of *rice com*etition #et)een firms see+ing a

    mar+et a-antage or to *rotect an esta#lishe mar+et *osition.

    7a8 Perfect Price %iscrimination E charging )hate-er the mar+et )ill #ear

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    Sometimes +no)n as o*timal *ricing& )ith *erfect *rice iscrimination&

    the firm se*arates the )hole mar+et into each ini-iual consumer an

    charges them the *rice the! are )illing an a#le to *a!. If successful& the

    firm can etract all consumer sur*lus that lies #eneath the eman cur-e

    an turn it into etra *roucer re-enue 7or *roucer sur*lus8. This is

    im*ossi#le to achie-e unless the firm +no)s e-er! consumer(s

    *references an& as a result& is unli+el! to occur in the real )orl. The

    transactions costs in-ol-e in fining out through mar+et research )hat

    each #u!er is *re*are to *a! is the main #loc+ or #arrier to a #usinesses

    engaging in this form of *rice iscrimination.

    If the mono*olist is a#le to *erfectl! segment the mar+et& then the

    a-erage re-enue cur-e effecti-el! #ecomes the marginal re-enue cur-e

    for the firm. The mono*olist )ill continue to see etra units as long as the

    etra re-enue ecees the marginal cost of *rouction.

    The realit! is that& although o*timal *ricing can an oes ta+e *lace in the

    real )orl& most su**liers an consumers *refer to )or+ )ith *rice listsan *rice menus from )hich trae can ta+e *lace rather than ha-ing to

    negotiate a *rice for each unit of a *rouct #ought an sol.

    Secon %egree Price %iscrimination

    This t!*e of *rice iscrimination in-ol-es #usinesses selling off *ac+ages

    of a *rouct eeme to #e sur*lus ca*acit! at lo)er *rices than the

    *re-iousl! *u#lishe;a-ertise *rice.0am*les of this can often #e foun in the hotel an airline inustries

    )here s*are rooms an seats are sol on a last minute stan#! #asis. In

    these t!*es of inustr!& the fie costs of *rouction are high. ,t the

    same time t